Which one of the following statements is correct? 1. The time to maturity has no
ID: 2656522 • Letter: W
Question
Which one of the following statements is correct? 1. The time to maturity has no effect on the response of a bond’s price to a change in the bond’s yield to maturity. 2. Short-term bonds are more interest rate sensitive than long-term bonds. 3. The magnitude of price increases is greater than that of price decreases for a given absolute change in the yield to maturity. 4. Bonds prices are directly related to bond yields. 5. High-coupon bonds are more interest rate sensitive than low-coupon bonds.
Explanation / Answer
Correct option is > 3. The magnitude of price increases is greater than that of price decreases for a given absolute change in the yield to maturity.
.
The change in price for falling yield is higher in terms of percentage is higher than in case of change in price for rising yield in terms of percentage.